With that in mind, the following four companies are up against the patent cliff…

The Patent Cliff Crushes Drug Firms

When it comes to patent expiration, the statistics are particularly sobering for drug companies.

Having enjoyed 20 years of market exclusivity for the drugs they’ve developed, patent expiration completely turns the tide against these firms.

In fact, once a drug has lost its hallowed patent protection and lower-priced generic brands enter the market, the original developer can see sales crash by up to 90%. Hardly surprising, given that generic drugs average about 30% of the cost of the brand name.

EP Vantage says, “This year, drugs expected to go generic will leave some $38.7 billion of sales ‘at risk.’ In 2015, this figure rises to $47.5 billion – not far off the $54.7 billion that came under threat in the notorious patent expiry cliff of 2012.”

This is the reality facing Big Pharma companies, with many blockbuster drugs losing their patent exclusivity.

So which drug companies face an imminent patent whipping?

Patent Death #1: Pfizer (PFE). Having already lost Lipitor and Viagra to generic competitors in recent years, Pfizer’s quarterly revenue and profit just dropped again, largely due to drug patent expirations. Sales of Detrol, for instance, which tackles bladder problems and whose patent expired in September 2012, plunged by 58%.

In December, the company will lose exclusivity on its fourth bestselling drug, Celebrex, an anti-inflammatory medication that treats arthritis. With it, $3 billion in annual sales will vanish.

It’s a similar story for Eli Lilly (LLY). Sales and profit also fell in its most recent quarter, as the firm battles patent expirations on depression and anxiety medication, Cymbalta, and osteoporosis drug, Evista, earlier this year. Indeed, sales volume dropped by 16% and Cymbalta sales plunged by 73%.

On October 20, the U.S. patent on Abilify expired. But it received an extension for pediatric treatment, so there won’t be a generic competitor on the market until April 2015.

When there is, Bristol-Myers will take a big hit.

At its peak a couple of years ago, Abilify brought in around $2.9 billion in annual sales for the company. But that’s expected to sink to around $1.3 billion next year, according to Trefis forecasts, and continue falling steadily all the way to a mere $200 million by 2020.

Patent Death #3: GlaxoSmithKline (GSK). The British pharmaceutical firm makes Avodart, which treats benign prostatic hyperplasia (BPH) in men. In other words, it helps shrink an enlarged prostate and lowers the need for prostate surgery later. It also relieves prostate-driven bladder problems, such as frequent or difficult urination.

The FDA-approved Avodart in 2001, but Glaxo’s U.S. patent will expire in November 2015.

The company is trying to extend Avodart’s shelf life by finding other benefits beyond BPH. But the clock is ticking, and the prospects for hanging onto exclusivity don’t look good…

When the FDA rejected Glaxo’s bid to add prostate cancer prevention to the drug’s makeup, the company suspended its efforts. And Glaxo has already successfully sued challengers who infringed on the Avodart patent by trying to create their own knockoffs. So it seems inevitable that a generic version will hit the market once the patent expires.

That would be bad news for Glaxo, as its Avodart franchise has been one of the few bright spots in a difficult year for Glaxo. According to EP Vantage, Avodart sales are expected to hit $508 million this year, but dropping to $443 million in 2015, and falling off a (patent) cliff in 2016, with just $76 million.

But it’s not just drug companies at risk from expiring patents…

Food Giant Set for Imminent Profit Diet

Take one of the largest players in the food industry, for example…

Patent Death #4: Monsanto (MON). According to GMO Answers, the cost of generating a new genetically modified crop is $136 million. Needless to say, firms like agriculture behemoth Monsanto rely on patents to protect these massive investments.

In 2015, the patent on Monsanto’s “Roundup Ready” soybean seed (RR1) will expire – and that spells trouble for Monsanto. RR1 is the world’s most widely used genetically modified seed, and has been planted on billions of acres since 1996.

Once the RR1 patent expires, Monsanto will no longer have control over the seed – which could trigger a sea change in the GMO crop industry.

You see, while Monsanto’s seeds were patent protected, farmers couldn’t collect and re-plant the same seeds year after year without paying royalties to Monsanto.

But starting in spring 2015, farmers will be free to save and replant the RR1 seeds at will.

More importantly, the patent expiration will give other firms the opportunity to replicate the RR1 technology. This will spread the availability of GMO technology and increase competition in the market.

According to Country Folks, a weekly agricultural paper, the patent expiration could also lead to new university-based crop-breeding programs that would make GMO seed technology more freely available.

Bottom line: While RR1’s patent expiration could mean big things for the agriculture industry as a whole, it’s terrible news for Monsanto.

Onward and Upward,

Robert Williams

In addition to once being a full-time trader of equities and equity derivatives, Robert has also served as the lead financial analyst for a Forbes top-50 private corporation and as an analyst for an institution whose endowment is among the largest in the world. Learn More >>

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